Spectrum Brands Holdings, Inc. (SPB) Q2 2016 Earnings Report, Transcript and Summary

Good morning. My name is Kyle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands' Fiscal 2016 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question-and-answer period. As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, April 28, 2016. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin the conference. David A. Prichard - Vice President, Investor Relations & Corporate Communications: Thank you, operator. And good morning and welcome to Spectrum Brands Holdings' fiscal 2016 second quarter earnings conference call and webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and I'll be your moderator for our call today. Now, to help you follow our comments, we have placed a slide presentation on the Event Calendar page in the Investor Relations section of our web site at www.spectrumbrands.com. This document will remain there following our call. Now, if we start with slide two of that presentation, you'll see that our call will be led by Andreas Rouvé, our Chief Executive Officer; and Doug Martin, Chief Financial Officer. Andreas and Doug will deliver opening remarks and then conduct the Q&A session. If we turn to slides three and four, our comments today include forward-looking statements including our outlook for fiscal 2016 and beyond. These statements are based upon management's current expectations, projections and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated April 28, 2016, and our most recent SEC filings and Spectrum Brands Holdings' most recent 10-K. We assume no obligation to update any forward-looking statement. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our web site in the Investor Relations section. With that, I am now very pleased to turn the call over to our Chief Executive Officer, Andreas Rouvé. Andreas Rouvé - Chief Executive Officer: Thanks, Dave, and thank you all for joining us today. We reported – turning to slide six. We reported a solid second quarter following a strong first quarter. This gives us an excellent first half and continuing momentum to deliver another year of record performance in fiscal 2016. Despite major currency headwinds, we grew our second quarter adjusted EBITDA as reported by $71 million or 44%. If we exclude the benefit of our Auto Care acquisition and the additional two weeks of Salix which add up to $49 million, our legacy business grew adjusted EBITDA by $21 million despite the negative currency impact of $18 million. In constant currency, our organic EBITDA growth was a very strong 25%. Our growth in adjusted EBITDA from Q1 to Q2 is consistent with the quarterly EBITDA pacing we shared with you on our last call where Q1 is now our smallest quarter. The strong second quarter performance was driven by solid organic sales growth of 4.9%. This included record results in Home & Garden and Hardware & Home Improvement. We also saw battery and personal care growth in Europe and Latin America on a constant currency basis, as we continue to gain market share in those markets. Sales in our Pet legacy business were down 1%, but adjusted EBITDA grew 5% as we exit unprofitable promotions and low-margin private label business, but we could grow our core branded business. Also in our small appliance business, sales fell 3.5% excluding currency, but EBITDA grew double digit due to our decision not to participate in unprofitable promotions and drive instead higher margin products. This underscores a point I have made before. Spectrum Brands is pursuing the clear target to achieve long-term EBITDA growth and maximizing sustainable free cash flow. A key component of achieving EBITDA growth is organic sales growth. However, we will not pursue sales growth just for the sake of gaining market share. In opposite, we will either fix or exit any business in which we do not generate long-term healthy returns, even if this leads to a short-term decline in net sales. Analyzing our results from a regional basis, we are pleased with the solid quarter in North America, as well as in Europe and even in Latin America despite the currency challenges. Our more, more, more strategy is working as we expand or start to expand also in the U.S. into more sales channels and take advantage of our own sales organization in many international markets to gain market share. Our most recent acquisition, the Global Auto Care division, is performing to our expectations. It delivered a very strong second quarter, driven by solid U.S. sales and synergies around the globe as the integration has been completed. In the next phase, we are going to step up our cross-selling efforts. Turning to slide seven. Please let me point out that we operate in a very challenging global market, where price transparency has never been greater due to the Internet, which leads to an intense competition. At the same time, consumer spending around the world is uneven at best and retailers are managing inventories tighter than ever before. However, as we look at the balance of fiscal 2016, we remain optimistic about a record year with margin expansion. Our second half should again be larger than our strong first half, given the seasonal nature of some of our business such as Home & Garden and Global Auto Care. We see healthy top- and bottom-line improvement from a mix of distribution gains, innovation and continuous improvement savings. But I would like to caution you also a little bit, because weather conditions will have a major impact on our Auto Care and Home & Garden business during the upcoming peak season, where POS and replenishment orders can turn negative fast if we have cold or rainy weather. Our Spectrum First growth initiative and its growth accelerators around customers, process and people is our operating roadmap to drive our company to the next level. We are accelerating new product launches to attract more consumers and gain distribution. At the same time, we remain committed to providing superior value products to increase brand loyalty and we will work closely with retailers to eliminate unnecessary cost in our supply chain. In addition, we will drive organic sales growth with our more, more, more strategy, work on continuous product and process enhancements, and leverage our expenses through closer cross-divisional and global cooperation. As a consequence, we are investing more in R&D, marketing and our sales organization to ensure sustainable organic growth. As such, we have just merged our previously independent divisional teams in Canada into one bigger organization and strengthened the team to better leverage retailer relations and support functions in that region. With this, I would like to turn it over to Doug for a financial review and comments on our divisional performance. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thanks, Andreas, and good morning, everyone. Turning to slide nine, let's review Q2 results beginning with net sales. Second quarter reported net sales of $1.21 billion increased 13.4% versus last year. Excluding the negative impact of $32.1 million of foreign currency and acquisition-related net sales of $122.8 million, organic net sales increased 4.9%. Record growth in HHI and Home & Garden, as well as solid regional performance in the U.S. as well as Europe and Latin America on a currency neutral basis, more than offset lower results in our small appliance business. Reported gross margin of 38.3% increased 320 basis points from 35.1% last year, primarily due to the impact of the Global Auto Care acquisition, improved mix and strong productivity, all of which were partially offset by negative FX. Reported SG&A expense of $285.1 million or 23.6% of sales improved by 50 basis points versus 24.1% last year. And reported operating margin of 12.3% improved by 400 basis points compared to 8.3% last year. On a reported basis, Q2 earnings per share of $1.26 compared to $0.52 last year, due to the impact of the Global Auto Care acquisition, improved margins and a lower tax rate, partially offset by higher common shares outstanding. Adjusted EPS of $1.16 increased from $0.69 last year primarily as a result of the Global Auto Care acquisition and improved mix. Turning to slide 10, second-quarter interest expense of $58 million, increased $8 million from last year driven by acquisition financing, while cash interest payments of $59 million were $31 million above last year due to acquisition financing and coupon payment timing. The Q2 reported tax rate of 16.5%, decreased from 22.5% a year ago, primarily due to higher Q2 U.S. pre-tax income which is currently subject to a very low rate because of our U.S. net operating losses and lower tax rates outside of the U.S. Cash taxes for the quarter of $14 million, were $3 million above last year. In Q2, depreciation and amortization was $66 million versus $54 million last year, driven by higher stock-based compensation expense and the Global Auto Care acquisition. Cash payments for acquisition & integration and restructuring & related charges were $12 million and $2 million, respectively, in the quarter. Now on to our operating unit results, beginning with Global Auto Care on slide 11. GAC reported Q2 net sales of $119.5 million and adjusted EBITDA of $48.6 million, for a strong adjusted EBITDA margin of 40.7%. U.S. appearance and performance category consumption was solid, helped by favorable weather. Innovation continues across all major brands, including launches of Armor All Air Freshening Multi-Purpose Cleaning Wipes, STP Emissions Reducer and Fuel Injector Cleaner, and A/C PRO Rejuvenator and System Treatment. The GAC integration is progressing smoothly, with key milestones already achieved and expected synergies exceeding expectations. GAC went live on our SAP platform in early April, in Europe, following a successful cutover in early January for the rest of the world. GAC is pivoting now to new growth initiatives from first-year integrations and synergies, and we're making progress on international growth plans. Turning to slide 12, Hardware & Home Improvement. HHI reported record Q2 results on the strength of a solid growth in its core U.S. residential security and plumbing businesses. Reported net sales increased 4.3%, and 6.1% excluding negative FX of $5.4 million. Our continued planned exits from unprofitable businesses and the expiration of a customer tolling arrangement negatively impacted sales by 3.3% in Q2. Adjusted EBITDA grew 17.3% and reported margin increased 200 basis points to 17.8%. This was HHI's 13th consecutive quarter of year-over-year sales and adjusted EBITDA increases since its December 2012 acquisition. HHI is tracking toward another record year, with expectations for a solid second half. The business is healthy and growing above market rates. Growth drivers include extending our leadership position in home electronics and automation market, driving our multi-family/commercial market expansion initiative, steady growth in U.S. housing markets, U.S. line review wins, e-commerce expansion, and international growth in Canada and Latin America. Innovation in Q2 – innovation continued in Q2 and HHI's 2016 new product roadmap is the most robust in its history. Launches are occurring every quarter in locks, plumbing and builders' hardware. And on the operations side, cost improvements and metals deflation are more than offsetting pricing pressure and FX. As we mentioned at the CAGNY Conference in February, HHI has embarked on a three-year global transformation program that will result in lower cost, increased capacity and insourcing, and improved automation by the end of fiscal 2018. Now to Global Pet, which is slide 13. Reported Q2 net sales of $208.5 million fell slightly. Excluding negative FX of $2.6 million and acquisition revenues of $3.3 million, organic sales decreased 1%. Higher companion animal revenues in North America were offset by lower aquatics sales in Europe from the delayed pond season and resumption last year of our Russian business, and in the U.S., from an exit of an unprofitable aquarium promotion in Q3 last year that we're now lapping. Despite the flat sales performance, reported adjusted EBITDA improved nearly 2% and almost 5% excluding negative FX. Reported margin increased 40 basis points to 15.1%. And we are seeing the signs of sales and EBITDA momentum in fiscal 2016 in our North American legacy business due to operational improvements and restructuring initiatives began in Q3 last year which have taken hold. Pet looks to a stronger second half from process improvements in North America, growth in categories such as rawhide, more cross-selling with the IAMS and Eukanuba pet food business in Europe, and continued innovation and new product launches. Moving to slide 14. Home & Garden reported record Q2 results. Net sales grew 25.1%, principally from strong increases in repellents and household controls, as well as growth in outdoor lawn and garden controls. Favorable weather, solid retailer early season orders, market share gains, and the impact of the Zika virus contributed to the strong sell-in. Adjusted EBITDA of $44.2 million increased 40.3%, resulting in a record Q2 EBITDA margin of 28.5%, driven by favorable mix. The margin increased 310 basis points. Home & Garden is focused on driving POS with effective merchandising and marketing programs across its businesses. Retailers are full with product. As we always say at this stage of the year, much of Home & Garden's season is still ahead in Q3 and Q4. So we need to see strong continuing POS, favorable weather, healthy retailer replenishment order rates and monitor consumer activity in repellents as we move through the mosquito season. Our Aerosol capacity expansion project is on schedule for completion this fall, which will approximately double our filling capacity and reduce inventory levels starting in fiscal 2017. Now to Personal Care, which is slide 15. Reported Q2 net sales fell 1.9%, but increased 2.9% excluding unfavorable FX of $5.3 million. Double-digit growth on a constant currency basis in Europe, primarily in hair care and Latin America from new listings and distribution gains more than offset lower North American revenues. You know what, North America decline was due to a combination of overall category softness against strong growth last year, tighter retailer inventory levels, and the timing of new Remington product placements between Q2 and Q3. E-commerce growth in North America and Europe was strong in Q2. Continuous improvement savings overcame negative FX impacts from all regions, and strong new product launches in shaving, grooming and hair care are set for the second half of the year to help capture market share, as the business continues to leverage its global product development platform. Now, let's turn to Small Appliances on slide 16. Reported Q2 net sales decreased 8.8%, and 3.5% excluding unfavorable FX of $8 million. Currency headwinds were also strong in this business in Q2. The sales decline was primarily attributable to aggressive competitor promotions, retailer inventory reductions and overall category declines in the U.S., as well as the exit from unprofitable business in Latin America. Revenues in Europe were unchanged on a currency neutral basis. While global sales declined, exiting unprofitable businesses and strong continuous improvement savings helped deliver double-digit improvement in adjusted EBITDA excluding FX. Reported EBITDA margin was unchanged despite the sales mix. In the second half, primarily in Q4, small appliances planned major new product launches in categories including coffeemakers, toaster ovens, and slow cookers to gain incremental listings across the regions while continuing to deliver solid continuous improvement savings to further enhance profitability. Finally, the Global Batteries, which is slide 17. Reported Q2 net sales fell 2%, but grew 4% excluding $10.8 million of negative FX. Q2 adjusted EBITDA increased at a double-digit rate on a currency neutral basis. European growth on both a reported and currency neutral basis was primarily due to new customers and promotions. Double-digit increase in Latin America excluding negative FX was attributable to solid growth in alkaline and specialty batteries. Both regions delivered a good first half. Higher volumes and better mix offset negative FX, particularly in Europe where the impact was the largest. Continuous improvement savings more than offset product loss (20:17) changes. In North America, we are rolling out a new go-to-market strategy highlighted by a modernized Rayovac logo, clear price and usage segmentation, improved and more readable packaging, and campaigns to increase brand awareness. We have selectively added to our sales force to sharpen on focus on new or underserved distribution channel opportunities. Growth continues in the U.S. due to self-channel, along with gains in smaller regional accounts. Our highest-performing, longest-lasting and higher-margin alkaline battery Fusion continues to perform well. Moving now to the balance sheet on slide 18. We ended Q2 on a strong liquidity position with $300 million available on our $500 million cash flow revolver, a cash balance of about $133 million and debt outstanding of $4.173 billion. We expect to reduce our total leverage by approximately one-half turn to end fiscal 2016 at 4 turns or below. Free cash flow for the quarter was $58 million, and capital expenditures were $21 million compared to $16 million in the prior year. Turning to slide 19 and a review of our 2016 guidance. We expect reported net sales to increase in the high-single digit range, including acquisitions and partially offset by anticipated negative impacts from FX of approximately 330 basis points to 350 basis points based on current spot rates, primarily in the first half of the year. About 35% of our annual sales are outside of the U.S. across a very broad basket of currencies. We expect to deliver a free cash flow between $505 million and $515 million. Full year interest expense is expected to be between $235 million and $245 million, including approximately $15 million of non-cash items resulting in cash interest payments between $220 million and $230 million. Depreciation and amortization is expected to be between $240 million and $250million, including approximately $60 million for amortization of stock-based compensation. Our 2016 effective tax rate is expected to be between 10% and 15%. Recall that for adjusted earnings we use a 35% tax rate. Cash taxes are expected to be approximately $50 million. And as a result of a favorable tax ruling, we now have approximately $800 million of usable NOLs compared to the $700 million we entered the year with. We do not anticipate being a regular U.S. federal cash taxpayer for the next three years. Cash payments for acquisition & integration and restructuring & related charges are expected to be between $35 million and $45 million. And capital expenditures are expected to be between $110 million and $120 million, with incremental investments including the impact of full year expenditures supporting recent acquisitions, a major aerosol capacity expansion and to support technology and innovation. With that, I'll pass it back to Dave for Q&A. David A. Prichard - Vice President, Investor Relations & Corporate Communications: Thanks very much, Andreas and Doug. With that, operator, you may now begin the Q&A session, please.

Your first question comes from the line of Bill Schmitz from Deutsche Bank. Your line is open. Andreas Rouvé - Chief Executive Officer: Good morning, Bill.

Hey. Is there a way to disaggregate the organic growth between sort of like same-store sales and distribution gains? And then, like maybe if you can give us some color by category and channels. It seems like there's still a pretty significant distribution opportunity, but can you just like put some meat on the bone, in terms of kind of where you are and where you think you could be category-by-category? And then, again, just to sort of like separate organic between distribution and same-store if you can. Andreas Rouvé - Chief Executive Officer: Well, that's a rather complex question, but let me give it a shot. Let's start with the strongest growth, which is the Home & Garden division. Here, we had a fantastic growth and there we did actually do that detailed analysis, and roughly 50% of the growth is coming really from additional distribution. That means gaining new listings at retailers we had not been listed before, and the remaining is simply the benefit for instance of Zika, but also the mild quarter. So, stronger POS which again led to stronger replenishment orders. Just also a short comment on the Zika, because we were anticipating that that question may also come up later on. The insect repellent category is for us roughly one quarter of the Home & Garden division. So therefore, even if insect repellents are growing, let me say, very strong, that the total impact is still only going to be rather limited for the total Spectrum Brands picture. Now, moving on to the second fast-growing category, Hardware and Home Improvement, here again, we continue to have very nice success both on the retail side of the business and also on the builders segment of the market where we continue to gain market share. On the retail side, it is less new distribution; it is really that with the launch of innovation, we are getting more shelf space. So, therefore getting more space at existing retailers and that is really driving the growth. Moving on now to, let me – to Pet. Pet, here again, we are seeing a very nice progress in gaining new distribution that means our more, more, more strategy expanding into more channels. However, as we have flagged, there was in the past the unhealthy practice to try to promote the aquatics business by driving aquariums and making no margin or as a matter of fact in this specific case, which we exited from last year, we made negative margins. That is, of course, an unhealthy business. So therefore, again, it is a very solid development in the core business, even if the top line looks a little bit disappointing. So, Pet I would say is also driven by growing distribution, but offset by walking away from unprofitable business. Also I did mention in my earlier remarks, when we did the Salix acquisition last year, we acquired as part of the acquisition a relatively large private label business in this category, and here again, as we shift more focus on higher-margin branded business, we walk away from lower-margin private label business. Moving to the GBA category. Here, I think let's start with batteries. Overall, the growth in batteries is really coming from our more, more, more strategy. That means expanding internationally, going into more countries, and here again, we are leveraging our international infrastructure, where we have presence in countries -- for instance, as part of the HHI acquisition in a country where we have not been before and vice versa. So that is moving forward very nicely. The situation here in the U.S. is a little bit more challenging, because as I mentioned before, we do see a strong trend in the big retailers to reduce inventory. So we had for instance last year a major promotion to a big retailer in the U.S. shipping in March; this year, that promotion is going to be delivered in April. So retailers taking inventory in at a later time, but still the underlying trend is very healthy, and also here in the U.S. we are gaining new listings in newer channels with our batteries category. Now moving on to the appliance and I want to talk further about personal care and home appliances really together. Last year, we had a fantastic market growth. So we had a very strong momentum in the market, and then the entire retail and also the manufacturers went very euphoric into the peak season with Black Friday and with the holidays, and had a lot of orders on book and took a lot of inventory in. However, what we are seeing now over the last six months, actually, that means starting pretty much with the Black Friday time window, the market actually is declining. So the market growth is now negative both in personal care and home appliances. This in a consequence led to excess inventory both on the manufacturers side, but also in the retail side, which led to this relatively aggressive promotional behavior in the market, where in some cases we simply decide not to participate even if that may mean that in one or other case, we did lose some sales. So in the appliance segment, I would say that is probably the toughest environment of all our business right now. Auto Care, here the new acquired business, a very solid growth, again mainly driven here in the U.S. If we look at the performance internationally, there we do see, let me say, flat sales, reason being that in some areas we're seeing first benefits of our cross-listing initiatives. However, at the same time, we're changing our go-to-market model, where we are partly moving away from distributors and going direct with our own sales organization. As a consequence, those distributors are depleting their inventory and therefore, we do have some negative impact which should be a temporary setback. I'm not sure if that covers pretty much your question.

No. It does. I mean, so it sounds like, just like the old model, like the base business grows at plus or minus GDP, and then everything else on top of that is kind of distribution. Is that a good way to think about it? Andreas Rouvé - Chief Executive Officer: That's a very good point. And one point which I did not mention earlier during the appliance and that is really the best category. It is the additional distribution, but we're also looking at additional categories, that means looking at adjacent categories, be that for instance in the appliance business, where we are coming out on the market with slow cookers, a category which is growing nicely in the market where we have not been active in the past. So, therefore, also here we are broadening our product offering and therefore expect to pick up sales going forward.

Okay, great. And my peers are going to kill me if I have one more question. I mean that was a little long one. But, is there any reason to believe that the battery category isn't going to get more rational with the new Duracell ownership? So, have you seen any changes, either better or worse, as that transition happens? Andreas Rouvé - Chief Executive Officer: I am hoping for it, and I am begging for it, but it is always interesting, because you and your peers are also looking at Nielsen. It is always interesting to look at the promotional intensity of the competitors. And, as long as some of those sell 50% of their volume at promotional activities, I'm not sure if that's a rational behavior.

Okay. Great. That's helpful. Thanks for all the time, guys. Andreas Rouvé - Chief Executive Officer: Thanks, Bill. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thank you.

Your next question comes from the line of Kevin Grundy from Jefferies. Your line is open.

Thanks. Good morning, guys. Andreas Rouvé - Chief Executive Officer: Good morning. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Hi, Kevin.

First, I wanted to start on the top line guidance and just to make sure I'm thinking about this correctly. So, you maintained the expectation for a high-single digit increase all-in, but FX gets a little bit less favorable. Doug, maybe you can touch on that component, but that's because that seems to be counter to I think the market expectations and what the dollar has broadly done. But, set that aside for a moment. So, high-single digit increase all-in, but FX gets less – I'm sorry, gets a little bit less favorable. So, does that sort of imply that the organic sales expectation is now up by that amount by which you changed FX, about 130 basis points better. And, if so, is the expectation now about 4% to 5% organic relative to roughly 3% to 4% previously? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Well, what I would say, Kevin, is you're right. We did adjust the top line FX expectations from the last quarter, given – we have a very broad basket of currencies. And if – the euro has been relatively stable since the last call, but the other currencies have – almost every other currency in the world has moved against us a little bit. So, that's the reason for that top line adjustment. And, you're right, we've had – we had a little bit of tailwind in some of our businesses this year. We've talked about Home & Garden, and we've talked about the strength of HHI as well. So, that is – that FX that is being compensated for across the rest of the businesses. Now, we haven't actually guided on an organic basis and you'll see how that plays out across our portfolio as the year unfolds.

Okay. But nothing changes that -- I guess with respect to the contribution expect from M&A, from the deals that you've done, is that fair? Douglas L. Martin - Chief Financial Officer & Executive Vice President: No, that's correct.

Okay. Douglas L. Martin - Chief Financial Officer & Executive Vice President: The deals we've done are annualizing into this year, pretty much right on our plan.

Okay. And then there will be questions on how much repellents contributed in the quarter, do you have a number for the organic ex the contribution from repellents and from Zika? Back of the napkin would suggest it could have been at least half a point, is that reasonable or do you have an exact number? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Well, as Andreas mentioned, that part of our business is roughly 25% of the Home & Garden business and the growth has obviously been very nice. We're hesitant to go into a lot of detail on that because what's yet to be seen in the remainder of the season, which is -- most of which is ahead of us, is what the consumer hold through is and usage is of repellents in particular, and particularly related to concerns around Zika. So we really want -- we're very pleased with the sell-in. We're very pleased that there is plenty of our products at shelf for consumers to purchase and the U.S. has been strong, but we want to see that continue through the rest of the season.

Okay. just one -- sorry, go ahead. Andreas Rouvé - Chief Executive Officer: One small additional comment, the growth of the Home & Garden was -- less than half of that was driven by insect repellent. So, also the other two pillars are also developing very strong.

Okay. That's helpful. One last one from me, for Andreas, how much more sort of pruning or right-sizing of some of your businesses do you see in front of you? There has been some in Pet and some in Batteries, walking away from unprofitable parts of the portfolio. How much more do we still have to go? What should we expect there and what would be the implications on the top line and margin? So that's the first part of it. And then the second part more broadly, you guys have had an outstanding first half of the year. Andreas, what are you most focused on in the back half in terms of delivering as you look across your businesses? That will do it for me. Thank you. Andreas Rouvé - Chief Executive Officer: I think the question of exiting is a difficult one because as everyone knows, we are making better margins in the branded business than on private label business. However, if we have our own manufacturing capacity, we try to fill it up as much as possible, so that we have high factory loading and as a consequence low cost per unit. However, as we then grow the branded business, we are more rigid on price increases on the private label side and therefore, as a consequence, do partly substitute it. That means partly a growth of branded business is going to substitute lower-margin private label business, simply as we fill up our factories with branded growth. So, therefore I would say, this kind of exit will be a kind of moderate continuations, mainly as we continue to grow in our core business. But overall, I would say and I'm also looking at Doug, we have pretty much the biggest exits we have addressed and I think therefore that should be a lower impact than in the past. Douglas L. Martin - Chief Financial Officer & Executive Vice President: That's right. And we have it, while we've addressed them, they will continue to annualize for the rest of this year across Pet in a couple of cases and across HHI as we've discussed in pretty good detail. Andreas Rouvé - Chief Executive Officer: And even in batteries, even in batteries, North America, we have walked away from private label business and partly implemented nice price increases, simply to make that business more attractive. Douglas L. Martin - Chief Financial Officer & Executive Vice President: How is the back half of the year expected? Andreas Rouvé - Chief Executive Officer: The back half really is good. The point what we are struggling also, obviously, is as the retailers reduced their inventory, we had to make sure that our service level remains on an extremely high level, so that we avoid out-of-stock situations. So therefore, our focus is really shifting very much of supporting the growth, the organic growth with having the good systems in place where we can guarantee high fill rates to the retailers despite those retailers taking their inventories down. So that is pretty much I would say our key focus in making sure that we continue with that operational improvement.

Very good. Thank you. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thanks, Kevin.

Your next question comes from the line of Olivia Tong from Bank of America Merrill Lynch. Your line is open.

Great. Thank you. Just following up on that question to start. You've obviously had some very nice organic sales growth in the first half. So how do you think about consumption and obviously, your comfort level with where retail levels have – I'm sorry, where inventory levels at retailer are going right now? And then on the weather, you mentioned the impact of the weather on Auto Care, Home & Garden, a couple of those categories. So, as you talked about it, what are you factoring in? Are you assuming just similar level as last year or are you assuming better or worse in terms of the weather? And then I have another question after that. Andreas Rouvé - Chief Executive Officer: Sorry. Help me again, what was your first question? The second one on the weather, it's easy to answer. Yes, we are expecting similar weather pattern as last year. So, we are not extremely optimistic, but we are also not extremely pessimistic. So therefore, no exceptional assumption made there. Douglas L. Martin - Chief Financial Officer & Executive Vice President: And that one Olivia is very sensitive during the week, because if it rains during the week and it is nice on the weekends, Friday, Saturday, then things look good across both of our businesses. If rains Saturday and Sunday, obviously that's a bigger challenge for us. So it really is a week to week issue in our – issue and/or opportunity in our business. Andreas Rouvé - Chief Executive Officer: Yes. And then, I got your first question on the consumer consumption. I think this is really category by category different. So, obviously the most obvious is on insect repellent, very strong demand. POS is very strong, even if it's early part in the season. So, we see that strong. Also in the Hardware & Home Improvement division, the market demand is there, it's growing nicely in the 5%, 6% range, so very healthy. I mentioned earlier, in Appliances, last six months, it's a little bit a kind of setback, could be driven a little bit that there is really no fantastic new trend out in the category, be it on the fashion side, be it on the cooking side. But, overall, I would say no dramatic change and really the impact we have seen now in the second quarter on the Appliance is really more that retailers are reacting to the excess inventory, therefore, slowing down order intaking. But, we see that normalizing going forward because even if the market is declining 2%, that is not such a dramatic impact. And, we will continue to expand with our more, more, more strategy. And, therefore, we are quite confident that we can overcome that negative market trend.

That's very helpful. And then, you mentioned earlier in battery that about percentage of sales on promo still being around 50%. Clearly, there is only so much that one competitor can do. But where do you think the right level of sales on promo is, because it's obviously not zero, but where do you think the right number is? Andreas Rouvé - Chief Executive Officer: I have a little bit of handicap that I'm 26 years in the battery business. And the pity is no one, no consumer in the world is going to use more batteries because they're on a discounted price. You either need a new battery in your remote control, in your game, in your clock or whatever, or you don't need it. And therefore, every battery sold on a promotional price is foregone profit, be it for the retailer or the manufacturer. So therefore, every rational person would try to drive the promo share down to 0%. But then, again we have to realize we're living in a competitive world where promotions help to stand out at point of – shelf and that's why still – yeah, a lot of competitors are doing it quite aggressively.

Got it. Thank you so much.

Your next question comes from the line of Joe Altobello from Raymond James. Your line is open. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Good morning. Andreas Rouvé - Chief Executive Officer: Hi, Joe. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Just staying on North America battery for a second, you guys have said in the past that your ACV is about 50%, which seems pretty low. How far do you think that could go first of all? And secondly, could you quantify the shift in timing of the battery shipment that usually falls in March, but shifted to April this year? Andreas Rouvé - Chief Executive Officer: Well, the distribution is -- obviously we can't give you a specific number. The point and I think I had mentioned it earlier, our strategy in the past, after the bankruptcy period, had been on purpose to focus on the big retailers because that helps you to make follow the 80/20 rule, where you focus on your top accounts and you basically walk away from all the B and C customers. Our more, more, more strategy is now going to call on those. We do see there some nice progress because again, in those accounts, you had mainly only two competitors and now with a third competitor appearing, they are quite happy, those retailers, and we do see there some nice progress. How much growth opportunity, that is tough because of cost. Again those competitors will not watch passively our efforts and therefore, I would say it will be a moderate improvement year by year. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. And then in terms of the quantification of the shift – the shipment? Douglas L. Martin - Chief Financial Officer & Executive Vice President: That one, Joe, is mostly timing. We're not going to quantify the exact amount in part because we expect it to shift from Q2 to Q3, but also because we're seeing general tightening across our entire retail landscape. So, between those two things I think, directionally that explains what Q2 impact was. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. And then just going back to the FX question, could you give us an example of some currencies that are moving against you? Douglas L. Martin - Chief Financial Officer & Executive Vice President: You name it, other than the euro. Andreas Rouvé - Chief Executive Officer: Yeah, and (44:11) Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Seems like the (44:12) Latin American currencies, they're all – they're all strengthening against the dollar. Andreas Rouvé - Chief Executive Officer: Yes. I think, we have to make a distinction. In the second quarter and we're talking about the second quarter, we had in Latin America, for instance the Brazilian real was down 28% year-over-year. Since the second quarter, it has come back. So this picture has changed now a bit in April. So therefore, you may not fully appreciate that. The same with the Argentina peso of 40% year-over-year decline. And even if you look at Europe, the British pound was down. The euro has more stabilized but the pound was quite a bit down. And for instance, in the UK, we are very strong in the Appliance business. So if you look at the EBITDA impact for total Spectrum Brands of $18 million this quarter, $10 million out of those came from Latin America. So Latin America was really hit worst this quarter by currency. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. All right. Thank you. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thanks, Joe.

Your next question comes from the line of Zack Fadem from Wells Fargo. Your line is open.

Hi, good morning, guys. David A. Prichard - Vice President, Investor Relations & Corporate Communications: Hi, Zack. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Good morning, Zack. Andreas Rouvé - Chief Executive Officer: Morning.

Hi. Can you talk a little bit about just current capacity constraints in the Home & Garden business? With sales growth accelerating, is there currently unmet demand for that business? And can you talk about the game plan to fill the new capacity once it comes on this fall? Andreas Rouvé - Chief Executive Officer: Actually, the good news is no. We have been aware of our capacity limitations, so what we are doing are two things: A, we are pre-producing. So if you look at our inventory overall, I have to admit I'm not very happy where our inventory stands, but then again a big part of that is exactly the Home & Garden division where we are pre-producing to be ready and to have a high service level as we go into the peak season. The second part we have also lined up sufficient subcontractors which are going to help us to satisfy the demand, even if our own in-house capacities are not there. So we feel very comfortable that we will be able to meet the demand going into the peak season. Obviously, if we use a subcontractor, there's a cost related to it. But then again, as you have seen in the second quarter, the top-line growth easily then triggers and falls through to the bottom line as well. Now, the second point on the capacity expansion project -- that is moving very nicely ahead. We should be able to be online for the next year for the peak season, and the key benefit is really that we will be able to reduce our inventory. As a consequence, that means we will not need to pre-produce as much and hold a reserve inventory, but we can more produce according to the seasonal demand.

And with that business being 100% domestic, I'm curious: are there any plans to expand globally once you have the excess -- the new capacity? I mean, are there any particular hurdles to go global beyond capacity constraints that has kept this business from expanding previously? Andreas Rouvé - Chief Executive Officer: Yes. Actually – and this is (47:33) one of the categories globally, which has the highest demand in registration and approval processes. So, getting local, regional approvals is a very time consuming process and as a consequence that is taking us quite some time. But yes, we are working on it. And again, we are focusing on those markets where we have already a strong infrastructure, where we have a strong presence and where the demand especially for insect repellents is high. And I think, I don't need to go into further details.

Okay. And if I could just throw in one more question on cross-selling efforts in Auto Care, last quarter you hinted at some distribution gains at retail and also expansions in Europe and LatAm. I'm just curious how that's come to fruition, and when we might see it impact results more. Andreas Rouvé - Chief Executive Officer: You know, the cross-selling is going in both directions. If we try to push our legacy categories like batteries, like insect repellents in the auto channel, then obviously we have to be aware that this is seldom a main destination; it is more a kind of impulse purchase for those shoppers which go into that auto specialty channel. So, therefore this is for those retailers seldom a top priority and therefore, those listing degotiations (48:58) are typically only every two years or three years. So therefore we will need to wait for those windows of opportunity to come up, and then again, we need to have very strong compelling reasons for them to exchange a long-term partner against a new partner, which always is related with some risk to them. So therefore that process is ongoing, but we are building up that relationship, that trust level, and we believe that that is going to happen, not in year one, but probably year two, following we will see those benefits. Now, on the international side, that is going to be much easier because there we do not have, as in North America, such a concentrated specialty channel, but a much more fragmented channel. And therefore, there again it is a strength of our organization with our strong infrastructure that we are calling on many of those channels that we will be able to push both Auto Care products into our legacy channels and vice versa, also to take advantage of some of those channels like gas stations and so on to push also some of our legacy products. So that is coming along, but again, from the very beginning we said this is not going to be the year-one impact. That is going to be an impact on year two following, because you need to establish the trust relationship first with the retailers, you need to get your product portfolio, you need to get your marketing materials adapted to call on those accounts, and then it will start to show a fruit.

Great. Thanks so much for taking my questions. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thanks, Kevin. Andreas Rouvé - Chief Executive Officer: Thank you.

Your next question comes from the line of Jason Gere from KeyBanc Capital. Your line is open.

Thanks. Thanks for squeezing me in. I guess most of the questions have been addressed at this point. Really just maybe talking about the cash flow and obviously the better quarter that came through, and it seems like a positive outlook for the back half. Outside of FX, is there anything out there why the cash flow wouldn't be raised at this point? And just the second part of that is, I know the focus is on debt repayment. I think you said a half turn by the end of the fiscal year. So maybe if you can just give a little color on the M&A environment? I think you've talked a little bit about, maybe if a right tuck-in is there, obviously nothing more strategic at this point. So, I was just wondering if you could give a little color from that aspect? Thanks. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Sure, Jason. This is Doug. Thanks. On the cash flow side, we are tracking the plan this year, relatively speaking. From a working capital perspective, as Andreas mentioned earlier, we've got a little more invested in inventory in a couple of our businesses now in anticipation of seeing the year through in a really healthy way. And to the extent that that does, we expect to deliver near the top end of our cash flow range than the lower end. And if we don't, we get stuck to the lower end of that range. FX does have an impact on it as you've noticed. So, we're holding the range where it is. As you know, we're pretty confident in our ability to deliver cash flow and very, very focused on it. So, a lot of effort and a lot of attention in that area, inventory a little high at the moment. From an M&A perspective, you've laid out the color that tuck-ins could happen. Nothing major right now. Our primary focus is on deleveraging. Andreas Rouvé - Chief Executive Officer: And I think also, let me to that, we have learnt in the past, if we do too many acquisitions, we may be over burdening the organization with the integration. And therefore, we are also very happy that we can use this time not only to delever, but also to complete the integrations of our acquisitions and that's our key focus right now.

Okay. And then, if I could ask just one more question. So, you're talking about battery and personal care being stronger in Europe. And I know obviously, the more, more, more strategy is trying to kind of replicate your success in Europe to North America, and while we've heard about the distribution opportunities, I was just wondering if there's any context areas where you think you might have to work a little bit harder, that maybe it's not as -- that I guess the transformation over maybe not as easy, or are there learnings along the way that you kind of have to take a step back and say, hey, maybe we have look at this a little bit differently. So just wondering, contextually, if there are any areas in North America that maybe you have to change up a little bit with the more, more, more strategy? Thanks. Andreas Rouvé - Chief Executive Officer: Yes. I think and then I had tried to hint at it during my comments. I think the more, more, more requires investment. In the first step, it requires an investment into sales people, people calling on those channels. And again, if you go to the past and look at our expense ratio, batteries North America had always the lowest expense ratio of all our business globally. And that was very simple, because it only called on three or four customers. Yes, and therefore, what we're doing right now, we're recruiting, we're investing into our sales organization to call on those other channels. So, therefore, it will take some time: A, you have to gain the trust of the retailers; B, you have to establish those organizations. And also Doug referred to it for instance in the battery industry, we are also stepping up a little bit our communication, focus on the digital world, but basically we're stepping up our communication, A, with our make in the U.S. focus in batteries that we are very proud to be producing here in the U.S. our batteries; and then second, also getting a little bit kind of more communication out there that Rayovac batteries are as good as the other guys or even better.

Okay. Great. Thanks for the color. Andreas Rouvé - Chief Executive Officer: Thank you.

Your next question comes from the line of Bob Labick from CJS Securities. Your line is open.

Thank you, good morning. Andreas Rouvé - Chief Executive Officer: Good morning, Bob.

So, wanted to ask. Obviously, you've addressed the guidance for this year. But beyond this year, can you talk a little bit about organic growth goals? I mean, historically, you've been 0% to 2% for the last several years. Presumably, I believe you're setting your sights higher than that with the more, more, more strategy. So, what are the future expectations and goals for organic growth? And what are the changes required to get from 0% to 2% historically to maybe 3% to 5%, or whatever the goals maybe? Andreas Rouvé - Chief Executive Officer: I think Bill has really summarized our thought process quite good. If we believe that GDP is a good average for the category growth we are in, because there will be certain categories which are growing faster, other categories which are growing slower. Therefore you know, if GDP is a kind of underlying market growth which we should be participating, and then again, with our more, more, more strategy; at the end of the day, it is our target to basically double that growth rate, yes. So, therefore we would definitely want to grow faster than GDP and the beauty is, we really see in all categories that growth opportunity, be that in the international expansion, be that in expanding into more channels globally, but also broadening our product offering and going after new categories. And like for instance, in the Auto Care acquisition, if you think about it, we are about protecting, coatings, materials, and so on. So, therefore we believe there may be very interesting adjacent categories, which longer term may offer incremental growth opportunity.

Okay. Thanks. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thank you. Andreas Rouvé - Chief Executive Officer: Thank you. David A. Prichard - Vice President, Investor Relations & Corporate Communications: Okay. Operator, I think, we've got one question left. So, why don't we take that and then we'll close down the call.

Your last question comes from the line of Kevin Ziets from Citi. Your line is open.

Hey, guys. Thanks for squeezing me in. The last question is on batteries, I guess, curious with the new strategy. If you think you're looking to change your price gaps in the industry at all, or at least the price gaps maybe between your sort of good, better and best offerings? Andreas Rouvé - Chief Executive Officer: Batteries is again a very difficult category because, A, it is a low-interest product. For most consumers, they understand very little about it. And therefore, they buy the product quite often as an impulse. However, even if you look at the details, there can be huge performance differences in batteries and certain batteries may work very well in a so-called low-drain device like a remote control or a clock on the wall. However, it may operate very poorly if you put them into a toy or if you put them into a kind of a digital equipment where you have high pulse electrical flows, and that's why we want to educate consumers better to underline what is the reason for those price differences, because if you look at some of the price differences in front of the shelf, and you go from the top-priced product to the bottom-priced product, you may easily find us a factor of 3 to 4. And therefore, it is very important, our opinion to educate the consumer, so that he knows when to buy which product and when not to buy a certain product, even if it may look attractive from the price point. And that's really our strategy to try to offer the consumer, for the different price points, the best offering.

Okay. Do you still, I guess, offer similar value versus your national competitors? Andreas Rouvé - Chief Executive Officer: As good or better.

Great. And I guess last question is just on your capital structure, one of your bonds becomes callable later this year, I was just curious, your thoughts around potentially refinancing that? Douglas L. Martin - Chief Financial Officer & Executive Vice President: You've seen us, Kevin, doing a lot of work on capital structure over the last 18 months now I guess, and you're aware that we're always evaluating where we are. So, as that one comes near, we will obviously be reviewing it and if it makes sense for us to do something, we will. But outside of that near-in one, our tenure is very long and very manageable. So, I feel really great about the capital structure right now, and we'll review that a little later in the year.

Makes sense. Thank you, guys. Andreas Rouvé - Chief Executive Officer: All right. Thank you. David A. Prichard - Vice President, Investor Relations & Corporate Communications: Thank you. Thank you, Kevin. And, thanks to everybody. With that, we've reached the top of the hour. And, we know there is a lot of other calls this morning. So, we'll go ahead and conclude our call at this time. I certainly want to thank Andreas and Doug. And on behalf of all of us here at Spectrum Brands, we want to thank you for participating in our fiscal 2016 second quarter earnings call. Have a good day. Take care.

That concludes today's conference call. You may now disconnect.